Experts question S&P’s credit rating upgrade for Ghana

An Economic Analyst has described Ghana’s credit rating upgrade from B- to B by Standards and Poors (S&P) as a “pleasant surprise”.

Courage Kwesi Boti said although, there have been considerable improvements in Ghana’s fiscal front from 2017 to date, the essential markers used by other credit rating agencies – i.e. debt-GDP ratio and debt servicing track record makes the eventual upgrade by S&P questionable.

“It appears that in this particular rating the major driver has been the advancement we have seen in monetary policy transmission and the ineffectiveness of that transmission so far…but for me, credit rating is really…about borrowers’ ability to pay, or otherwise, the debt [they owe lenders,” he told the host of PM Express Joy News channel on MultiTV.

“For me, logically, the factor that should weigh more in credit rating analysis should be the fiscal exposure because that is where your ability to service that debt could be found. We are talking of things like your debt-to-GDP ratio, what level it is. The higher it is it raises the question of debt sustainability,” he said.

“Your fiscal deficit, how much deficit you run each year. In other words how much you need to borrow each year to finance the gap between your revenue and expenditure every year. Your primary balance…those factors determine your ability or otherwise to service the debt. So for S&P to outline all those risks and yet go ahead and improve our rating is a pleasant surprise, yes,” he said.

In a related development, Professor John Gatsi, Head of Finance Department,   University of Cape Coast (UCC), has disagreed with the government’s interpretation of the recent Standard & Poor’s (S&P) verdict on Ghana’s economy.

He said government should not be overly excited about the current ratings because it did not address the fundamental weakness of the economy.

According to him, the current S &P did not take into government borrowings for September and the over GHȻ9-12 billion it was expending on the defunct banks.

“Ghana’s credit rating has been at B from B- since late 2016 by Moody and again in May 2017 by Fitch all with stable outlook. The September rating by S&P at B with stable outlook after a year on account of Fitch means Ghana has not really improved.”

He said: “The current rating is not based on improved revenue and expenditure performance but on potential stability of the banking sector when recapitalisation is completed in December 2018.

Prof Gatsi said, “Government should find a way to ensure that narrow deficit with improved balance of payment (BoP) influence the performance of the currency.”

The Economist suggested that government should focus on putting measures in place to shore up the weakening cedi, tame rising growing inflation as well and curb the soaring of fuel prices.

According to the report released on Friday, the country’s outlook has been upgraded from B- to B.

“The upgrade reflects our assessment that Ghana’s monetary policy effectiveness has improved, albeit from a low base, and will support the credibility of the inflation-targeting framework over the period,” S&P said in the report.

Explaining further, S&P stated that the country’s improving banking sector stability and lower inflation support their view that the effectiveness and transmission mechanism of Ghana’s monetary policy has improved.

The government has said the rating shows that investors are upbeat about the progress Ghana’s economy is making.

By Kingsley Asare

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